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Volcker Rule Dead?: Investors Seem Skeptical

By

Matt Phillips

Mar 17, 2010 11:52 am ET

Associated Press

Judging from the reaction of the markets, investors are still wary about declarations that the Volcker Rule has been whacked.

“We’re hearing the Volcker Rule, as specified by Dodd and his new banking reform bill that bans proprietary trading by banks, probably dead,” reported CNBC’s Steve Liesman.This would square with what our comrades over at Deal Journal were saying recently.

Count us as officially confused as to the exact status of the much-ballyhooed set of prohibitions on prop trading at bank holding companies. A version of the Volcker Rule was included in the bill introduced by Connecticut Democratic Sen. Chris Dodd earlier this week. But it’s not really a strongly written outright ban on prop trading. Here’s how the FT explained it: “The Dodd version of the Volcker rule is not quite a firm diktat that prevents banks from trading on their own account and forces them to sell off businesses; it is an instruction to regulators to consider how to break up institutions.”

The Journal’s explanation is pretty similar: “For instance, a version of the so-called Volcker Rule included in Dodd’s proposal wouldn’t prohibit certain forms of bank speculation outright, as its namesake, former Federal Reserve Chairman Paul Volcker, intended. But Dodd’s proposal would give regulators leeway to enforce limits on a case-by-case basis.”